People usually misunderstand what it means to be an entrepreneur (read: The Meaning of Entrepreneurship). One of the most difficult issues that they face is their own motivation. The first time entrepreneur usually believes that his primary motivation is commercial. Their actions usually prove that commercial goals are low priority. This schizophrenia causes unnecessary stress to the entrepreneurs and value destruction to the company. Continue reading
Author Archives: Sabah al-Binali
The Poetry of Entrepreneurship
A well rounded education, formal or informal, is necessary for the success of any entrepreneur. The internet is replete with quotes relevant to the entrepreneur. But the world has offered much more, oh so much more, to the inquisitive mind. Yes, Malcom Gladwell has interesting insights, a look into Steve Job’s life might be beneficial, and maybe you can really learn to work for only four hours a week.
But all of this misses the power of words that connect with you emotionally, at a deep level. The spirit must receive the same nourishment as the mind and body, and what better than the world’s leading poets to provide such nourishment? Who better to capture the spirit of the challenge, the journey, that is an entrepreneur?
The Investor’s Edge
Many of the ideas used by the investment community are adopted from the horse track and casino betting communities. Much of the failure that has dogged the investment community is due to rocket scientist PhDs misunderstanding the successful models of plebeian punters. The use of betting as an example is not an endorsement, just history.
To understand how the securities markets work you have to look no further than the horse bookies. Bookies take the bets from the bettors. This is the first point that the public begins to misunderstand how betting, and therefore investing, works.
There are two potential misunderstandings: The first misunderstanding is assuming that each horse has a uniform probability of winning, i.e. they are all just as likely to win. The second misunderstanding is assuming that the bookie offers one to one payout odds, i.e. pays $1 for each $1 that is bet. Grasping the significance of these statements is the key to successful investing.
The bookie, equivalent to the investment bank or broker, will always make money. Always. They do this because they do not set payout odds depending on which horse they think will win, they set payout odds based on how people bet.
Second Order Questions and Sterilising the Oil Price Effect
Consider, if you will, an oil exporting nation. Consider further those nations whose commodity exports far exceed their budgetary needs. What is a nation to do with such excess wealth?
There are two main approaches to this. The first is the more conventional strategy inherited from central banks, in many ways the precursors to SWFs. This method, which I will call risk-off, seeks simply to hold foreign exchange reserves, usually the US dollar, in the form of high quality, low risk assets, usually US Treasury bonds.
The second strategy, which I will call the risk-on, borrows heavily from pension and endowment funds. Investments are made not to protect value, but to create value so as to meet future obligations. Not only is public equity as an asset class targeted, but all manner of alternative investments including but not restricted to private equity, hedge funds, real estate and high yield debt.
So as not to confuse the point that I am trying to make, I would like to clarify that there is no right or wrong to which method a government chooses, as the choice is driven by policy considerations not investment considerations.
Back to our story. If an oil exporting country with a risk-on strategy suddenly faced oil prices dropping by 50%, what is the net effect to its revenue? Using Norway as an example, their circa 1.7 million barrels per day of export would lose USD 85 million per day in revenue or USD 31 billion per year.
Trading Insights: Exposing the St. Petersburg Paradox
The St. Petersburg Paradox is a famous problem in probability and economics. The problem states that a coin is repeatedly flipped. The bet starts with $2. Every time a tails shows up, the bet is doubled. The first time a heads shows up the game ends and you receive the current bet from the ‘house’. The question is, how much would you pay the house for such a game?
From a probability point of view, the expected payout is infinite, and it is not hard to see why: the payout is doubled each round. This leads us to the paradox: you should be willing to pay an infinite amount to play this game. Most people would refuse to.
The Intricacies of a Productive Economy
From the point of view of a national economy, what does it mean to be a successful company? Is it contribution to GDP?
GDP is an attempt at measuring the production of an economy. It is not an efficiency measure, but a measure of overall economic strength.
GDP is of course difficult to measure. First, how does one collect the necessary information? In most countries the tax authority can provide this information since all commercial transactions must be reported to the authority. In the UAE there is no such authority and this creates a challenge.
The Breeding and Nurturing of Ideas
I must own up to something. I am not a prolific writer. I get that compliment quite often by readers of my articles. But I do not produce 3 to 5 major ideas a week. I harvest them.
What do I mean when I say that I harvest my ideas? Nobody can come up with so many ideas on a consistent basis. My ideas did not form in the days before I wrote an article. They formed over the period of my professional career, and even before that. And when I needed them, either to do my job or to write an article, well there they were.
What the Board Should Expect of a Management Presentation
In a previous article I discussed how to conduct an effective board meeting. One of the main elements discussed in making board meetings effective was management presentations. In this article I will explain why most management presentations to the board are less than useful and how the board can help change that. It is a continuation of my discussion on operational corporate governance.
The first misunderstanding is assuming that a management presentation means a PowerPoint presentation. It doesn’t. PowerPoint presentations can certainly be part of the management presentation, but cannot be the sole document as PowerPoint, or any other visual slide presentation software, does not have the ability to present the full depth and breadth of information needed. For this reason it is better to call it the management pack so as avoid any confusion.
Things That Would Probably Make Tony Say Hmmmm…
I first became exposed to the term Limousine Liberal when I arrived in the United States to attend university. For those who don’t know, Limousine Liberal is a less than flattering term used in politics to describe rich people who espouse left leaning policies but don’t adhere by them. You must use an environmental friendly Prius, please ignore my 12 cylinder gas guzzling Land Cruiser. You must use the bus, please excuse my S63 Mercedes. You know the type of person.
I believe that I have uncovered a similar sickness in the world of business. I have decided on a preliminary name of Bourgeois Bolshevik. This is a person who espouses complete garbage under the guise of being a friend of the regular employee. I have collected some evidence. Shall we begin?
The Pirate Code is behind Pay Inequality
In the fourth article of the game theory series, we build on the Saudis out-bluffing OPEC and The Joker forcing the good people of Gotham to choose between game theory and Batman. In this installment, you will learn how blood thirsty, treasure hunting pirates might just explain the ridiculously large wage gaps in modern day corporations. To set the stage, one must think like a pirate, indeed be the pirate. I do not mean the rum soaked debauchery of commercially suggestible women in a tavern named Hurricane. What I mean when I say ‘think like a pirate’ is think selfishly. That’s what successful senior executives do. Isn’t it?